Tuesday, November 27, 2007

Integrating ASEAN economies

Opinion and Editorial - November 23, 2007

We should magnanimously acknowledge that we are the laggard in the marathon run to the ASEAN Economic Community in 2015 as our economy, though the largest of the ten member countries, accounting for 230 million of the region's 570 million population, is among the least efficient and least competitive.

The ASEAN Economic Community (AEC) Blueprint adopted at the summit meeting in Singapore on Tuesday therefore imposes on us a heavy load of homework to improve physical infrastructure such as roads, seaport, telecommunications and power supply as well as regulatory and bureaucratic frameworks.

We have only about seven years to gear up for the ASEAN single market -- the main foundation of the economic community -- which allows for the free flow of goods, services, investments and skilled professionals in order to integrate the ASEAN economies into a global economy through global supply chains.

Integration into the global supply chain is perhaps the most important intermediate goal of the AEC Blueprint, because unlike the European Union, ASEAN depends on the external world for more than 25 percent of its trade and for the bulk of its investment needs.

The basic idea has never been to build a European Union-modeled economic community. The main objective is to woo more foreign investment to the ASEAN region as businesses can use one of ASEAN's ten member countries as a regional base for production not only for that particular country but also for the region and the entire global market.

Different investment and trade regimes and different quality standards and regulations on business operations in ASEAN countries as they are now make them less attractive to such potentially giant economies as India and China, which offer huge economies of scale.

The rationale is that foreign investors will have advantages to establish regional production networks in ASEAN countries only if the region has become a reliable part of the global supply chain. That is because without superior logistics capabilities, companies will not be able to tap local comparative advantages and economies of scale.

Manufacturers now require an efficient supply-chain management to allow for lower storage costs, lean manufacturing and just-in-time delivery because they have to adjust to the changes in the whole demand cycle. Without such advances in logistics and supply capability, regional market integration through subdivision and dispersion of production processes among ASEAN countries will not be cost effective.

The groundwork for creating an efficient ASEAN single market is already an uphill challenge by itself because it requires efficient transport, expedient customs services and harmonized customs procedures, common production standards, efficient licensing bureaucracy and easy visa requirements.

ASEAN should make concerted efforts to facilitate the smooth transit of goods between two ASEAN countries through a third and open up air-cargo services, including express delivery firms.

ASEAN needs an independent dispute-settlement mechanism to resolve disputes between members within free-trade implementations, because there are many areas that could cause different views or disputes. Take for example the verification of the country-of-origin certificate with regard to the minimum 40 percent ASEAN content to make products eligible for the tariff-cut regime.

Assessing this minimum ASEAN content could become a major source of disputes because many factories in the ASEAN region still depend on input, parts or components from suppliers outside the region.

Unfortunately, when it comes to logistical arrangements, Indonesia is among the least efficient of ASEAN's six founding members, Brunei, Indonesia, Malaysia, Singapore, Thailand and the Philippines, as national and international surveys have often confirmed. The main reasons are crumbling basic infrastructure, red tape and corruption.

The Asian Development Bank rightly pointed out in a recent report that Indonesia's top-priority homework with regards to preparations for the AEC should be the development of good governance and improvement of basic infrastructure and the investment climate.

If our economy does not improve its overall efficiency and competitiveness it will be other ASEAN countries that will benefit greatly from the single market concept as foreign investors will set up their regional production bases in other ASEAN countries, such as Vietnam, Thailand or Malaysia.

Our economy will become simply the market outlet for products and services from other ASEAN countries. We will not even be able benefit from the free flow of skilled professionals between ASEAN. We may instead lose many of our best doctors, nurses, accountants, architects or other professionals to other ASEAN countries which can offer a better working atmosphere and remuneration.


Source: http://www.thejakartapost.com/yesterdaydetail.asp?fileid=20071123.G01

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